Answer to Question #207923 in Macroeconomics for Nicki

Question

Explain by means of a graph how government can intervene in the market using subsidies as a means to increase output

Answer 1

Subsidy:- The money that is directly given to the firm by the government to encourage production and consumption

The subsidies shifts the supply curve downwards vertically creating a new supply curve that is parallel to the original. This effect aims at reducing price and increasing output.